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Lecture 31

ECON101 Lecture 31: Week 12 / Apr 3 - The Demand for Factors, The Supply of Labours

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University of Alberta
Gordon Lee

Week 12 / April 3, 2017 1. The Demand for Factors 2. The Supply of Labours THE DEMAND AND SUPPLY OF FACTORS OF PRODUCTION How does the firm decide how much to supply... Factors Labour Wages Land Rents (land) Capital Rents (capital) Entrepreneurship Profits The price and quantity of a factor is determined by the equilibrium in the factor market w = input price F = quantity of the factor The demand for a factor is a derived demand. The demand for capital is derived from the demand for the product that is produced by using that capital. (ie: your demand for a machinery/labour is derived by the demand for your product) The Demand for Labour How much labour should a firm hire? What is the profit maximizing level of labour? To answer this question we're going to compare what an additional unit of labour costs to what that additional unit contributes to revenue. Benefits of an additional unit of labour Recall: Marginal Product (the change in output resulting from an incremental change in the use of labour) New term: Marginal Revenue Product = the change in total revenue resulting from an incremental change in the use of labour Calculating MRP L ie: Suppose P = $4 and the firm is perfectly compet
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